BIR Ruling [UN-199-94]

July 7, 1994 BIR RULING [UN-199-94] Cityland Development Corporation Cityland Condominium 10 Tower I 2nd/3rd Floor, 6815 Ayala Avenue 1200 Makati, Metro Manila Attention: Atty . Alberto Wilfredo O . Oxales, Jr . Legal Counsel Gentlemen : This refers to your letter dated June 20, 1994 requesting clarification of Unnumbered BIR Ruling dated January 27, 1994 specifically paragraph II thereof which states as follows: cdtech "In view thereof, and there having been a factual verification that for purposes of settling their income tax liabilities, the gross profits from the installment sales have already been reported in full, and that, further, the accounting computerized records of your clients showed that when the initial payments received from each buyer during the first year exceeded twenty-five (25%) percent of the stipulated price, the cash sale method of reporting its gross income is applied , your opinion to the effect that the installment payments received by Cityland in 1990 and subsequent years on the sale of a condominium unit covered by the aforedescribed Contract to Sell executed in 1989 are not subject to the creditable withholding tax since said sales has already been reported as a cash sale, or the income therefrom has already been reported in full for income tax purposes in 1989 and the corresponding tax thereon has been paid even though it has not yet received the monthly amortizations due for the succeeding years is hereby confirmed." It is represented that you are in the process of registering a number of your sales transactions with our Regional Office in Makati, Metro Manila which are "sales on a deferred payment basis, not on the installment plan." In reply thereto, please be informed that Unnumbered BIR Ruling dated January 28, 1994 is clear that income from the sale of real property may be reported either on the installment basis or on the deferred payment basis not on the installment plan. You represented that your sale transactions are 'sales on a deferred payment basis, not on the installment plan" i.e. the initial payments in the year of sale exceed twenty-five percent (25%) of the selling price. Since the taxable gain or income returnable during the year of sale is the difference between the selling or contract price and the cost of the condominium units, determined in accordance with Section 34(a) and (b) of the Tax Code, as amended, even though the entire purchase price has not been actually received in the year of sale, the installment payments to be received by you are no longer subject to the creditable withholding tax under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended. Said sale has already been reported as a cash sale, or the income therefrom has already been reported in full for income tax purposes in the year of sale and the corresponding tax thereon has been paid even though you have not yet received the monthly amortizations due for the succeeding years. (BIR Ruling Nos. 205-91; 034-70). The opinion dated May 30, 1994 of the Chief of the Legal Division of our Regional Office in Makati on the abovementioned subject matter that "In the case at bar, the mode or manner of payment is not the controlling factor in determining the taxability of the transaction under RR 1-90. What is considered is the law applicable at the time of the consummation of the sale . . ." is off tangent and therefore not in point. Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner Legal Service